Appellate court modifies tax assessment, annuls penalty, upholds interest.

The appellate court partially modified, annulled, and confirmed the assessment. The tax levied by the Assessing Authority was annulled and modified according to the actual tax liability of the appellant for a specific period. The penalty imposed was annulled, ruling in favor of the appellant as there was no prima facie suppression of facts. However, the levy of interest under Section 50 for delayed tax payment was upheld, with directions for the Assessing Authority to calculate the interest based on the actual tax liability.

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Issues Involved:
1. Legality of best judgment assessment under Section 62 of the CGST/SGST Act.
2. Interpretation of GSTR-3B as a return under Section 39 of the CGST/SGST Act.
3. Justifiability of penalty imposed under Section 122 of the CGST/SGST Act.
4. Legitimacy of interest levied under Section 50 of the CGST/SGST Act.

Detailed Analysis:

1. Legality of Best Judgment Assessment under Section 62 of the CGST/SGST Act:
The appellant contended that the best judgment assessment by the Assessing Authority (AA) was not based on any dependable and authentic evidence. The AA estimated the appellant’s outward taxable supplies by enhancing the returned outward taxable supplies in the returns in Form GSTR-1 by 50% towards probable supplies, and levied tax thereon at 18%. The AA invoked Section 62 of the CGST/SGST Act, 2017, which allows for best judgment assessment when a registered person fails to furnish the return under Section 39 or Section 45, even after the service of a notice under Section 46.

The judgment highlighted that the AA’s findings were not based on analytical and exhaustive scrutiny, and there was no material collected or any elaborate enquiries conducted to substantiate the assumed turnovers. The AA’s estimation of turnovers was based on mere guesswork and lacked authenticity and legitimacy, making the orders vulnerable to being set aside. The judgment referred to various case laws which establish that best judgment assessments must be based on relevant material and not on arbitrary or capricious estimations.

2. Interpretation of GSTR-3B as a Return under Section 39 of the CGST/SGST Act:
The appellant argued that GSTR-3B is not a statutory return prescribed under Section 39 of the CGST/SGST Act, and hence, Section 62 cannot be invoked for non-filing of GSTR-3B. The judgment referred to the Gujarat High Court’s decision in AAP and Co. v. Union of India, which clarified that GSTR-3B is not a return required to be filed under Section 39 of the CGST/SGST Act. The judgment concluded that since GSTR-3B is not a return prescribed under Section 39, the appellant had not violated the provisions of Section 39, and hence, there was no necessity to assess it under Section 62. Consequently, the best judgment assessment orders were declared as non est/void.

3. Justifiability of Penalty Imposed under Section 122 of the CGST/SGST Act:
The AA imposed a penalty of 100% under Section 122, alleging wilful suppression of turnovers. The appellant contended that it had filed GSTR-1 returns disclosing the outward taxable supplies, and hence, there was no suppression of facts. The judgment highlighted that the AA had not recorded exhaustive reasons for determining the tax and penalty and had passed tax/penalty orders through a single order, which is not legitimate. The judgment referred to the Andhra Pradesh High Court’s decision in Writ Petition No. 33777 of 2018, which mandated that a separate notice for passing penalty orders must be issued before levy.

The judgment concluded that the AA’s attribution of wilful suppression was not justified as the appellant had disclosed the outward taxable supplies through GSTR-1 returns. The penalty imposed under Section 122 was set aside as there was no prima facie suppression of facts by the appellant.

4. Legitimacy of Interest Levied under Section 50 of the CGST/SGST Act:
The AA levied interest of Rs. 2,76,31,152/- under Section 50 for delayed payment of tax. The judgment upheld the levy of interest, stating that whenever any dealer fails to discharge applicable tax in time, they are liable to pay interest at 18% for the delayed period. The AA was directed to compute the leviable interest as on date against the actual tax to be paid by the appellant.

Result of the Appeal:
The assessment was partly modified, partly annulled, and partly confirmed. The tax levied by the AA of Rs. 36,22,84,718/- was annulled and modified as per the actual tax liability of the appellant for the period from December 2017 to August 2018. The penalty of Rs. 36,22,84,718/- was annulled, and the appeal was allowed in favor of the appellant. The levy of interest was confirmed, and the AA was directed to compute the interest based on the actual tax liability.

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